Ryanair Holdings PLC (RYAAY) 2013 Q2 法說會逐字稿

Welcome.

Sorry, we ran slightly over on the press conference there so we're running just a couple of minutes behind.

Joining me is Howard Millar, as you know, our Deputy CEO and CFO.

We're going to briefly run through the slide presentation.

I'll do this quickly because you've seen a significant amount of it before.

And then we'll open up to questions and answers.

A strong set of half-year numbers this morning.

We're still technically in the offer period for Aer Lingus.

Our offer is going through phase-two regulatory process with Brussels and, therefore, I can't really comment in any detail on Aer Lingus.

That's just the usual boiler-plate ass covering we need to do.

Europe's ultra -- only ultra low-cost carrier continue to grow very strongly.

The lowest-fare, lowest-cost model continues to succeed dramatically across Europe.

An interesting statistic is that our excluding fuel, per-passenger cost of EUR26 in the half year is now more than 50% lower than our next closest competitor, easyJet, and significantly lower than any of the other European competitors.

As a result we're growing strongly; 79m passengers on 1,500 routes from 51 bases across Europe.

In terms of fares, the Ryanair average fare, this, in the half year, was EUR53.

easyJet's average fare is more than 50% higher.

And everybody else that we're competing with in Europe, which is where a lot of the growth opportunity will come from in the current years, have average fares more than double those of Ryanair.

Customer service this year continues to improve, despite what you might read in the media, over the summer.

We've had a phenomenal on-time performance; 93% of all flights this summer on time.

A lot of that was helped by the fact that there were fewer than normal air traffic control delays, strikes etc.

Long may it continue, But it does go to show what kind of service could be delivered by Europe's airlines if our friends in Brussels actually took some action to ban or remove the right to strike from air traffic controllers.

We keep making the point, if the military and the police can't go on strike, why can you close -- why can air traffic controllers close the skies.

We should remove the strike weapon from them, which would transform not just the punctuality, but also the financial performance of Europe's airlines.

We've lost fewer bags than any other airline and fewer cancellations as well, as a result of which we're growing and we're on track now to exceed 79m passengers for the full year.

Traffic growth of 6% in the first half.

It will slow to about 4% -- it will slow in the second half.

What is it, about 4%?

No, it will be flat in the second half.

In Q3 it'll be up a little bit (multiple speakers).

Yes.

So 4% -- sorry, 4% overall for the full year.

In terms of coverage, 51 bases, 170 airports, 28 countries etc., etc.

Interesting new slide here for you just in terms of cost per passenger, this is excluding fuel compared to Ryanair with easyJet and Air Berlin here in Europe, and with Spirit and Southwest in the States.

Our total cost per passenger excluding fuel of EUR26 in the half year is less than half that of easyJet, a quarter of that of Air Berlin and significantly lower than the best in class in the States, being Spirit and Southwest as well.

I think it shows the scale of the growth opportunity that we enjoy here in Europe.

One of the real underlying trends I think of the last 12 months has been the extent to which easyJet has been taking aircraft out of short-haul markets where they compete with us at airports like Liverpool, closing the base in Madrid, moving and looking for new routes to places like Israel, Egypt and Moscow, God help them, from the UK, where they don't face the competition from Ryanair.

So where they're competing with Ryanair they're switching or taking capacity away and trying to find those opportunities, like British Midland did before them, of finding markets where they're unlikely to face competition from Ryanair.

And that has been a significant driver of our growth and will be into the future as well.

And what drives that is that the fact that our cost per passenger is so much lower than everybody else.

It gives us an enormous amount of pricing power and, I think, an enormous amount of available growth for us in Europe in the coming years.

In terms of our margins, nobody beats our margins or our returns.

There's been quite a lot of positive commentary on the easyJet in recent months, almost to the extent that sometimes people seem to have forgotten what a -- how, fundamentally, what a better model the Ryanair model is.

Our net margin is 13%, double that of easyJet.

Our cash earnings are double that of easyJet, way ahead of Southwest in the States.

Our free cash flow is a multiple of that of easyJet.

Net cash balance continues.

We have a very strong net cash position, despite the fact that we're still buying and acquiring aircraft.

And over the last four years we've returned, including the end of November special dividend, over EUR1.5b to shareholders in the form of two special dividends and five share buybacks.

We've returned more to shareholders than we've ever originally raised from them.

Since we floated in 1997 we've raised in total EUR585m from shareholders.

And, remarkably for an airline, we've now returned almost three times that amount of money to our shareholders, while still sitting on close to EUR4b in cash today and an aircraft fleet of nearly 300 aircraft.

We continue to see significant growth potential across Europe in the coming years.

We calculate at the moment that, at 80m passengers, we've about 12% of the European short-haul market.

That's characterized by other so-called low-cost carriers, most of whom don't make any money; flag carriers who clearly can't make any money in the short-haul marketplace; some, although a declining, number of [friends] and charter carriers; and some other odds and sods.

We think it's reasonable for us to target a minimum 50% growth over the next 10 years, which would take us from 12% to 18% market share.

And that will still put us at less than where Southwest are today in the States, at a 20% market share.

And I think most of that growth will not come from -- anyway, the press were on today about us flying to Moscow and Israel or -- the real growth is going to be still in Mainland Europe.

We've already announced next year, for example, in the UK regions a significant increase in aircraft -- passenger capacity at Liverpool, Manchester and East Midlands airports next year, much of that driven by easyJet's cut -- withdrawal from Liverpool in favor of Manchester, just switching capacity to Manchester.

Whereas we're taking up an opportunity afforded to us by the easyJet withdrawal from Liverpool, but still growing at Manchester and still growing at East Midlands as well, all of it on the back of very -- we've much more efficient airport cost deals that weren't available [to us] a number of years ago, either at Liverpool or at Manchester.

The short-haul potential across Europe remains large, largely by taking traffic away from restructured, or so-called low-cost airlines going bust, or significantly continuing restructuring in the short haul, models of flag carriers like Iberia, like SAS, like Air Berlin in Germany, but also stimulating further traffic growth.

There's a slide here which shows the potential, we believe, for further top-line growth across Europe where the number of short-haul flights per capita is significantly less across many of the bigger European economies than it is in a country like Ireland.

Now, Ireland is an island, but it's also one where there's been a lot of economic problems in recent years.

We believe there's still, though, significant opportunity for Spain, the UK, France and Germany to grow into something not necessarily as high as Ireland, but certainly to grow from where they are.

And if you look at Poland, which is a market where we're very focused on at the moment in growing very rapidly, it's -- the number of flights -- short-haul flights per capita is a tiny fraction of what it is in the other established European economies.

Just touch briefly on the financial results; passengers up 7%; average fare up 6%; revenue per passenger up 7%; ancillaries up 20% -- up 15%; and profit after tax up 10%.

A very strong balance sheet, recently described by Bloomberg as the strongest balance sheet in the world, the world's least indebted airline.

We've moved from a net debt position at this time last year of EUR372m, despite acquiring a number of more aircraft and in completing two share buybacks, we've gone to a net cash position currently of EUR250m.

That will obviously be impacted by the EUR500m dividend at the end of November.

Highlights of the half year again; profits up; ancillary revenues up 20%; passengers up 7%.

We've raised the full-year guidance from EUR400m to EUR440m.

Now, on the back of a strong half year and reasonable outlook into Q3 -- we've still almost zero visibility in Q4, raised the full-year numbers to EUR490m to EUR520m.

Gross cash is just under EUR4b.

The fleet size is now at 298 aircraft, with 11 more deliveries through September and December of this year.

Special dividend paid at the end of November.

And the Aer Lingus offer has gone to the phase-two process.

Outlook for the remainder of FY '13, I think we're reasonably cautiously optimistic.

We've significantly raised the guidance now that we've had a complete and strong first half.

Expect traffic to rise 4%, to 79m.

Our total fuel bill, though, will rise this year by EUR260m, much of that in quarters one, two and three.

There isn't much of a step up in fuel in Q4 because of the higher prior-year comparable.

Interestingly, unit costs excluding fuel up 2%, largely the Italian air traffic control cost increase of the Spanish -- doubling of the Spanish airport fees which was unexpected and a surprise in June and July.

Nevertheless, average fares up 4% for the full year, that's 6% in the first half, probably about 2% in the second half subject to the Q4 outturn.

And, again, competitors continuing to restructure.

There's going to be very significant restructuring within Iberia, some of the Lufthansa subsidiaries, Air France, Alitalia, SAS and Air Berlin.

Net cash at the year end, post the -- we'll still be in a net cash position at the year end, having paid out the nearly EUR500m in special dividend at the end of November.

Just to delight and amuse, we've launched the 2013 charity calendar.

I have some copies here for GBP10 each.

Over 450 volunteers I'm happy to say, 430 of whom were females, 20 of whom were male.

15 cabin crews were selected, shot in Paphos with the help of the Cypriot tourist authorities and selling out like hot cakes.

A summary, therefore, we continue to be Europe's only ultra low-cost carrier, growing strongly in a marketplace where competitors are structurally loss-making and being forced into continuing restructurings.

We continue to expect to see strong growth over the coming years.

We've raised full-year guidance.

We're returning cash to shareholders.

We still have some aircraft deliveries in December.

But over the medium term we would expect -- I think there will be no aircraft ordered in the short term, by the way, but over the medium term, maybe year's three to five, we see another significant aircraft order.

Just to touch on the appendices, network, 51 bases across Europe.

In terms of the fuel hedging, we just said out there we're 85% hedged for the first half of FY '14 at slightly lower rates than the prior year, $970, $960.

We expect that that trend will be continued into Q3 and Q4.

We'd be disappointed if we're not hedged at slightly lower fuel rates this year over next, but obviously [if] the currency will be gone against us, so there will be a fuel cost increase into next year.

Touch briefly on safety, where we've had an extraordinary summer of nonsense, largely in Spain, generated, most of it, by completely inaccurate leaks to the Spanish media by the Transport Department down there.

We've an unblemished 28-year safety record, fully comply with all EASA, FAA and Boeing requirements.

The published report into the three Valencia fuel diversions of July 26, where we had three fuel emergencies, all confirm that all three aircraft carried excess fuel.

They were all diverted with more than final diversionary fuel.

All declared a fuel emergency procedure in accordance with EU regulations and all landed with the more than minimum reserve fuel.

There was recent meeting of the -- a joint meeting of the Irish and Spanish governments, generally at the request of the Spanish government, where a joint statement to confirm that Ryanair's safety is on a par with the safest EU airlines.

And the published report in the Spanish press which originated with the Transport Ministry, which was of 1,201 safety-related incidences in the first half of the year, has now been confirmed by the Spanish transport ministry as being untrue.

There is no such report.

We ourselves have under -- put pressure on the Spanish.

We've confirmed that there were two safety incidents in Spain in the first half of the year, not 1,201, and I think we're gradually -- or we'll put that issue to bed.

In terms of Stansted Airport sale, we continue to be concerned by the way that BA/Ferrovial have managed the process.

This is an airport which has doubled charges since 2007 and seen traffic fall by 25%, even as Gatwick and Heathrow have returned to growth.

Ferrovial is still running around bleating on about low consumer confidence causing traffic declines at Stansted.

We said if there's low consumer confidence causing traffic declines at Stansted please explain why Gatwick, Heathrow, Birmingham and Manchester are growing with the same, apparently, low consumer confidence.

Remarkably, Ryanair has been excluded from this sale process by Ferrovial.

We're fairly sure the reason we've been excluded is they didn't want us to get hold of the investment memorandum, which would say things like the fact that, actually, costs have been significantly padded over recent years; the regulator is an idiot who you can fool all of the time; the asset -- the underlying asset base at Stansted is GBP630m, but the regulator has allowed us to inflate that to GBP1.3b over recent years; and even when you spectacularly screw up, as BA have with the abandoned second runway project at Stansted, you still get to keep -- or to put GBP230m of those completely unnecessary costs into the regulatory asset base and inflate them every year while the dimwits in the CAA will be looking the other way.

This is a sale process which the Competition Commission said would be a customer-focused sale.

We have asked them to explain how in the name of Christ you can have a customer-focused sale with 70% of customers excluded from the process.

But apparently the Competition Commission don't have the ability to regulate how the sale goes ahead.

As long as Ferrovial finds somebody acceptable then that's all the Competition Commission will do, which is typical of the unique and spectacular incompetence of the regulatory agencies in this country where the -- in the aviation sector.

Nevertheless, RAB -- it will be sold off a RAB of GBP1.3b.

The RAB is utterly meaningless.

I think the new buyer -- I understand, but only from the papers, that we're down to two pension funds, Infratil or Macquarie, Manchester and possibly TPG.

We would clearly like to see it bought by the long-term pension funds whose rates of returns are significantly lower than MAG and TPG.

We don't think that MAG buying Stansted will be -- is the way forward, given that they haven't been very progressive at lowering costs at Manchester over recent years, until they faced some real competition from Liverpool, which, to be fair to MAG, has had a transformational effect on Manchester airport.

But we would like the pension funds with a 40-year investment horizon and a 4% or 5% rate of return buyout, as opposed to TPG, which would have a double-digit rate of return, which I don't think would be -- enable them to meet our objectives.

And what we've said to everybody is, look, if there's a significant cut in airport charges at Stansted Ryanair will deliver very significant traffic growth.

If there isn't, or if you think you're going to buy this and keep raising prices on the back of a regulatory incompetence in the CAA, then traffic at Stansted will continue to decline.

There was also some recent speculation in Italy about us not making -- paying our taxes.

We have paid all of our taxes.

We are fully compliant with the EU regulations on transport workers.

They all pay their taxes.

They're on Irish contracts, pay their taxes and social taxes in Ireland.

A new regulation was introduced in Europe in May/June that the social taxes must now be paid where the individuals are resident.

And we're happy to bring all of our people; we'll comply with those new rules as well.

And, interestingly, this issue has been tackled in the courts in Germany, in Belgium and Spain and they have lost in all cases, because Irish law is the governance of those contracts.

And we think there's nothing in that but the usual Italian shake-down, which we will not be that sensitive to.

Aer Lingus, EU consolidation process continues.

Ryanair has submitted an unprecedented remedies package, involves multiple up-front buyers coming to Ireland, some of them to open bases at the Irish airports, others to enter routes where Aer Lingus and Ryanair would have no competitor.

There would be a competitive -- competitor remedy on all 42 of the crossover routes, something that's never been achieved in any previous EU merger.

And yet, despite this comprehensive remedies, we've been shoved into phase two while, at the same time, BA [will rub us all out] to buy BMI on phase one.

I think on balance we suspect that the EU will do its level best to prohibit this offer, although we're going to do our level best to make it impossible for them to prohibit by submitting revolutionary remedies that they will find very difficult to get through the European courts on any kind of credible basis, given that the precedence, which now includes BA as the number-one airline in Heathrow buying the number two, it seems to me to be bizarre that the number-one airline in Ireland can't buy the number two.

Other than that, Howard, anything you want to add to that?

No, we'll take questions?

Questions.

We just -- obviously, we have the -- we're on the webcam.

So just [go in to settle] and say your name and who you represent for the viewers and we'll maybe turn to them after we've dealt with most of the questions here.

Good morning, gentlemen, it's Jarrod Castle from UBS.

I'll just limit it to two, I guess.

The 120m target, you're currently going to have a fleet of, let's say, roughly 300 planes.

Does that mean you have to buy another 150 to get to 120m passengers?

And then, I guess, you said probably no plane deal for the next three to five years.

Will you just keep building up the cash balance now that you're going to be throwing a lot cash off, I guess, from March '14?

And then, just secondly, just, I guess, some housekeeping.

What was the currency impact on yields for the quarter?

And I'm just talking about pounds converting into euros?

And, just secondly, what is the yield environment looking like in terms of your forward bookings?

Is it around 2%, given the guidance?

Can you repeat that last sentence?

Yield environment on your forward bookings, is it around 2% just given the half-year guidance?

Thanks.

Well, I think to the aircraft one first, no, for us to go to 120m passengers we need to add probably about 200 aircraft over the next 10 years.

There will be some replacement of our older aircraft as well.

But we already have more than sufficient.

We have within our own operations sufficient growth for 4% to 5% traffic growth for the next two years.

With the new aircraft delivery this winter that takes care of summer 2013.

We would then be able to deliver 4% growth by sitting fewer aircraft on the ground in the winter of '13, '14 and the winter of '14, '15 if needs be.

I think we would look to -- we could do a short term, whether it's leasing or be opportunistic in buying aircraft of other airlines that go bust, so we don't see the need.

When I say it's unlikely that there'll be an aircraft order in the next 12 months, I do think there'll be an aircraft order in the period of one to three years, for deliveries within year's three to five, if that makes some sense.

And I think we'll continue to be opportunistic in that.

There'll clearly be further aircraft closures.

If you look at, say, for example, some of Boeing's order book on the MAX aircraft at the moment, there's 100 aircraft from Norwegian.

I'm not sure Norwegian could fund 100 aircraft.

Lion Air in for a 100, Southwest have ordered 150, but then said they're not taking any more aircraft deliveries until their rate of return goes back to 15%, which could be a long time.

So I'm not sure about how robust the order book for any of the manufacturers is.

And the real test of that is the strength of the second-hand aircraft market.

And the second-hand aircraft market has been particularly weak for the last two years.

We haven't sold any second-hand aircraft, partly because there's been no real demand for them.

So I think we'll wait to see what happens.

We are in talks with Boeing, but I wouldn't put it any more stronger than talks.

You know we continue to be in talks with them, but we're not in active negotiations.

I think we would look to probably approach Airbus again, but at this point in time it feels to us that we're in a very comfortable position.

We have capacity growth there that would allow us to grow to 84m, 88m over the next two fiscal years without an aircraft order.

But clearly if there's a pricing opportunity we could place a very large aircraft order and do so with a lot of cash.

And I think our focus on that generally at the moment will be on the end-of-line, second -- the end-of-line NGs or the A320s, the non-neo A320s where I think both Airbus and Boeing have a difficulty, given that they have four or five more years of production of old-generation aircraft, where residual values will be -- they'll be hard to finance and the leasing companies don't want them any more because of the residual value issue.

We, as an end user, would be a very likely candidate for that -- those kind of aircraft, but only if they're priced accordingly.

Do you want to do the impact of the (multiple speakers) currency (inaudible)?

Yes.

In the half year the impact was about 2.4% of the movement of 6%.

And interesting on the other side, on the cost side, it is a significant contributor to the 2% adverse movement on fuel.

That has quite a lot of moving parts in that, but the actual-- it was slightly lower than 2.4%.

It was just below 2%.

So much of the increase in first-half unit cost was due to the movement on sterling, so it was both sides, a little bit more because we have a big percentage of our revenues in sterling that we have [on cost].

I'm sorry, just coming back to the airplane potential deal, will you just continue to build a cash balance now?

Yes.

I think there will be no special dividend next year.

I'd be very surprised if there'll be one in two years' time.

I think our focus now, having done two special dividends of nearly EUR1b in the last three -- well, effectively three years.

I think that's enough for the moment.

We now will focus on building up cash, partly because I think the financing market is tight.

Well, as you know, we did a fantastic -- Howard and his team did a fantastic job.

We've raised aircraft -- an aircraft financing bond at one rate of 1.7%, which compares to Air Berlin who recently did a bond at 11%.

But I would want to be -- I think we have a need to be putting down more cash on the next aircraft order just given the state of the worldwide financing market.

Thanks.

Yes.

Hi, it's Alexia Dogani from Liberum.

I just have two questions at the moment.

Just firstly can you explain why the fuel guidance has been reduced from the start of the year, from EUR320m to EUR260m, and what is driving that?

And then, secondly, if you can give us an update on reserved seating and how the take-up has been in Q2?

And obviously you've increased the offering now this winter.

Thanks.

The fuel is a combination of two things.

One, we got slightly fuel for the -- the non-hedged portion of fuel has been slightly weaker through the summer and we've been a beneficiary of that.

Two, we've also been very active in managing fuel-efficiency policies.

We have a team that now manages fuel, both what we put into a plane, regulating the speed -- largely the speed, height which our air pilots can fly the planes with.

Actually, we've been slowing down the speed of the aircraft in order to conserve or to reduce fuel usage.

And there's been a number of other measures as well, largely by requiring using our OFTM to require pilots to fly in compliance with our SOPs, the standard operating procedures, which is speed, height, rate of deceleration, rate of acceleration.

And that has been significant, particularly when the fuel bill over the first half of the year was over EUR1b, and that will continue.

The second part of the question was --?

Reserved seating.

Reserved seating penetration rate.

Penetration rates continue to rise.

It's been -- I think we've seen in some cases -- when we first launched reserved seating it was -- the take-up was very high on the longer flights down to the Canaries, those longer charter-type routes.

Increasingly it has spread across the entire system.

We're seeing now -- through this summer we were routinely running at more than 50% of reserved seats across the network being sold.

But I think what's been more interesting in the whole reserved seating sale is the fact that it hasn't cannibalized priority boarding.

It's almost been where the people who've bought reserved seating [because the] reserved seating obviously includes the priority boarding, but reserved seating has almost been incremental to priority boarding.

I think priority boarding has gone from 8% back to about 7% of passengers, whereas, reserved seating is running now typically at close to 50%.

Now, we think it will be weaker in the winter than in the summer, but we would like to -- we think that it will keep building towards about 50% of reserved seating over the full year, not in FY '13, but into FY '14 we would see about 50% of all the reserved seats being sold, higher on longer routes and more businessy-type routes, lower on really price-sensitive markets.

Like Poland, for example, there's a very poor uptake in reserved seating and priority boarding generally.

But I think it's -- as people become aware of the service and that the service is there and that it gives them the advantage to board last, get the last -- the front rows of the seats off first, there's an increasingly big take-up.

I see it myself, particularly on the Dublin-London routes, whereas, this time last year there was very few people in the reserved seats.

Now routinely we see 50%, 100% of the seats on those flights are reserved seats on those flights being taken up.

Do you expect to roll it out to the whole plane eventually?

I think it's unlikely.

I don't believe in rolling it out to the whole plane.

I would be concerned in our model that if you roll out reserved seats into the whole plane you go back to where we started originally, where people would be stuck up in the pub or in the duty-free shop knowing that they have an allocated seat and they don't have to show up until the departure time.

And that's core to our punctuality and why our punctuality is so good.

I think we would look for opportunities maybe to roll it out a little bit more, because we're now up to seven seats -- six rows of seats.

We might go to eight, 10 rows of seats.

I think it's highly unlikely that we'll roll it out across the entire aircraft.

We're certainly studying the easyJet model, which seems to be -- obviously, is the other way of doing it and, let's say, you say if everybody has now got an allocated seat but the first thing -- those of you who book early pay for their -- pay a fee.

When we think there's a tipping point where we think -- I would rather that we continue to have a priority boarding service and a reserved seating service, but extend the number of rows of reserved seats and target it that way, because that, I think, is the way that you don't compromise your punctuality.

The difference between us and easyJet is that increasingly easyJet are operating at congested airports like Gatwick, like Charles de Gaulle.

They're allowing building in longer flight times and longer turnarounds, so they're less exposed to delays as a result of allocated seating.

But that's not to say they're not maybe right.

We might also maybe finish up there, but I would at this point in time suspect we'll keep going with our strategy.

I don't necessarily believe -- I think the danger for us is that we would run into too many flight delays if we went all allocated and people suddenly got back to the ill-discipline of, I have my seat, so I don't need to be down there early.

What do you think?

I think we have different views on this.

It's certainly -- we've been very surprised, I think, at the take-up of reserved seating.

Penetration rates are well above where we expected.

There is, as Michael said, a consumer learning process.

It is a big jump to extend it out to all the seats because you get into a whole lot of different issues, which, I understand from the investor meeting this morning, that easyJet are experiencing on board.

So we need to look at it very closely, see how they get on with it, but certainly all our experiences, certainly, on the longer-sector routes, is very, very, very successful.

Thanks, Alexia.

Go ahead.

It's Andrew from Oriel.

Two questions, if I may.

You mentioned the -- that you're excluded from the sale process of Stansted.

To what extent are you able to, and are having, substantive conversations with the potential bidders about the sort of deal that you might get into?

And -- sorry, and secondly, a completely different question.

I think you mentioned you had quite good late bookings in the latter part of the first half.

To what extent has that continued into the third quarter?

Thank you.

With Stansted we've had no discussions since the formal sale process kicked off.

We've had extensive discussions with most of the four consortia -- well, all of them.

If the final four that have been identified in the press are the final four, then we've had discussions with all of those.

In all cases the discussion was remarkably similar.

If you significantly, i.e., reverse the price doubling in 2007 we will deliver you very rapid and very significant traffic growth which be self-financing, given that you're getting this thing for a steal and you don't need a lot of CapEx to handle that traffic growth.

And if you don't significantly reduce those charges then I think you are faced with no traffic growth, or possibly continuing traffic decline.

And there's been -- each of the discussions has been variants on that kind of discussion.

So I think they all are well aware of the fact that Ryanair is willing to grow very rapidly.

They're all well aware of what the costs are we want for that kind of traffic growth.

And I think there will be - I would be very disappointed if there isn't a meeting of minds on that with whoever the new owner will be.

The real problem for us is can the new owner get in there quickly enough so that we can start growing in summer 2013.

And I'm fairly sure that Ferrovial will find some way to delay the process into Q1 of next year rather than doing it pre-Christmas so that they can contaminate the whole of summer '13 and preserve or influence what happens at Heathrow for at least one more summer.

But -- And if you had any useful regulatory function here in the Competition Commission or the CAA they will be fast forwarding that sale process, but we don't see much of either -- of that from either candidate.

In terms of the bookings, yes, it's been stronger post the Olympics.

I have to say it was quite weak in the run up to the Olympics.

The first half of summer looked -- when we were on the full-year results brought to you in June it was very watery out there.

We were having to discount.

We were hitting our numbers, but we were having to discount for it.

It does seem to have appreciably altered post the Olympics.

I don't know whether that's the Olympics, because the Olympics might have affected the London market, but it doesn't affect most of the rest of Europe.

But there has been a -- I think a noticeable strengthening since the end of July into early August.

For the moment it has continued through into September, October and the early part of November, although I would be suspicious as to whether it will continue into Q4.

It's very hard for us to put our finger on why it's a little bit more robust.

We expect it to be weaker and it's a little bit stronger.

I think a lot of that because there is capacity discipline.

There is more short-haul capacity coming out of the marketplace.

What would help that immeasurably would be a couple of other failures in Europe in the autumn or in the run up to Christmas.

Whereas individually Wind Jet in Italy or OLT Express in Poland don't look like much, they really have a very significant impact [at] their withdrawal from those individual markets.

So on balance I think it will get weaker into Q4 unless there's another one or two more significant failures.

But if you take our yield guidance, which has been up 6% in the first half of the year and up 2% in the second half of the year, which, for us, is fairly unusual for us to be that -- us to be positive on yields at this time of the year, given that we have limited visibility and no visibility in Q4.

So I feel a bit cautiously optimistic for the remainder of the year.

Now, I think there's been a somewhat -- a slight degree of irrational exuberance this morning in some of the analysts' coverage.

I would like us all to strongly reign in the irrational exuberance.

It's still an airline.

Oil is still a bit of a moving feast and Europe is in the (expletive) and will continue in the (expletive) for the foreseeable future.

But that poses great opportunities for Ryanair, in that people keep flying but they'll get more price sensitive, they'll move to us.

Whereas.

on the other hand, if there was one or two more casualties, and we suspect that there will be, that would be very good for the model through the remaining half or into H2.

(Inaudible) maybe about closing bookings being (inaudible).

Yes, good.

Yes, what we've seen in the last -- certainly, the last nine months or so is that change to closing bookings being quite strong.

So we've seen that consumers are making that decision to travel somewhat later.

And you may have seen with some of the other guys [other] carriers are seeing that as well.

So that's generally a positive trend in terms of driving bookings, particularly notably across the summer when we got that bad stretch of weather.

Again, just to pour some little bit of caution into the outlook, the bit that would worry me most would be the tendency of European governments to continue to impose very unexpected taxes on air travel.

The Spanish government doubled the charges at Madrid and Barcelona on July 1 with almost no notice to anybody.

The Italians doubled air traffic control charges in Italy without any notice, or they quadrupled it without any notice.

(Multiple speakers).

We got told after the events.

And with (inaudible) in Italy the first time we heard of it was actually when the first -- the bill came through.

So you've got to be very careful here, because I think -- and the danger is if you look at the success and the amount of money that the UK government raises out of APD, there is a likelihood that there will be more of this type of stealth taxation, particularly of air travel, and particularly of short-haul air travel, which could have short-term impacts on our numbers.

I think over the medium term, as long as it doesn't distort the price differential between us and the competition, it won't change the growth model.

But in the short term I'd be very cautious, particularly into Q2 and into next year's numbers.

Although I know I can't restrain some of you, I would be just a little bit cautious.

It's not hard -- it's very easy to put a blue-sky scenario together, but I think we should be cautious because there will be more political or regulatory shocks to the system.

Who's next?

Yes, Andrew.

I got it.

Andrew Light, Citi.

On the subject of Stansted, is it just simply a question of just lowering the value of the asset base and, therefore, the tariffs will come down accordingly?

Or do you think there are some obvious cost-reduction areas at Stansted that could be addressed, or should be addressed?

You really have -- it's only when you actually analyze the regulatory accounts at Stansted you realize just how much cost padding has gone on there.

I think taking out from under the BAA will reduce Stansted's costs by about, we think, between GBP20m and GBP30m a year.

For example, in 2010 about -- something of the order of about GBP10m of Heathrow's electricity costs was reversed back into Stansted on a -- what the BAA euphemistically call the redistribution of electricity charges, group electricity charges, following the sale of Gatwick.

What it had to do with Stansted was beyond us.

When you actually drill down into it, they said -- the BAA justified it, well, that the -- as the electricity allocation had been wrongly allocated in 1993 between Heathrow, Gatwick and Stansted, when Stansted's traffic was about 1.5m passengers per annum, and somehow they (expletive) up their reallocation of -- they under-allocated electricity from Heathrow to Stansted at that point in time.

It has just been rampant doctoring of the books, where if you had any regulator worth their salt they'd have been all over it like a rash.

The fact that they allowed the GBP200m of [the sale] of the SG2 project, which originally they told [all the air industry] that if SG2 doesn't go ahead it's at the BAA's risk, the BAA will carry that risk.

Low and behold you finish up (inaudible) and the RAB inflated every year and that's cost recovery.

So there's been rampant profiteering been undertaken by Ferrovial in recent years.

There's clearly no capital or CapEx required at Stansted.

It has a terminal capacity, particularly with our model now, where 70% of passengers at Stansted were Ryanair passengers, really don't check in a bag, carry only one carry-on bag, therefore, you could easily -- the current capacity of the terminal at Stansted is about 30m.

I think it's closer to 40m.

So you could get Stansted up from 17m to 30m, 35m passengers at almost no CapEx whatsoever.

And all it needs is someone in there with a focus on growing.

If you grow traffic the benefits in terms of retail and the ancillary businesses are amazing.

If you look at -- the interesting quote from Stansted's own the statutory accounts, which, of course, are entirely different from the regulatory accounts, the statutory accounts have some wonderful euphemisms in it, such as that the -- Stansted continues to benefit from a passive regulatory regime; that while traffic continues -- is expected to decline in 2012 this will more than be made up for by revenue increases in passenger charges and commercial sales.

It's just naked (expletive) profiteering.

They've enough staff -- security staff to man every security point 366 days of the year.

Yes, in the last five years, as traffic at Stansted has declined by 25%, the security staffing has doubled.

That is apparently explained away by Stansted -- well, that's because of the liquids ban that was introduced in 2007.

Now, funnily, most of their (inaudible) have adjusted to that.

Like Manchester's staff in security hasn't increased at all in the last five years, while their traffic -- it hasn't grown, but it hasn't declined by as much as Stansted.

Just all they've been doing is gaming the regulatory.

To be fair, it's very hard to blame Ferrovial.

You've an idiot regulator that's asleep most of the time.

What else do you do?

You just game the system.

You increase the -- you understate the regulatory recovery and you overstate the actual underlying profitability, because you know you're going to be forced to sell it in two or three years' time.

If you can delay the sale for two or three years while you max out the profitability, well and good.

And ultimately I don't think it will make any difference going forward, because I'm not sure the regulatory asset base will be the regulatory model going forward.

There'll be a bit more competition between Stansted and Heathrow and Gatwick, and that will ultimately drive charges.

Thanks.

Can I just ask by how much Gatwick charges came down under the new ownership and also same for Manchester when it started to compete with Liverpool, just get an order of magnitude?

What's interesting is that what they've done at Gatwick and at Stansted is actually charges have risen, but it's been a much more -- almost like the way the airlines do it.

Pricing at Gatwick has come down materially in the afternoon and off-peak periods, so they are out there actively trying to stimulate growth and volume at off-peak rates, whereas, they've jacked up charges at the peak rates.

So one of the big problems for easyJet going forward is that they keep getting screwed by Gatwick for all the base aircraft that they have there.

Manchester has done pretty much the same thing.

One of the things we've complained most bitterly about at Stansted is that at Stansted there is no off-peak charging.

There isn't much of a peak at Stansted any more anyway, but there's no off-peak charging.

They won't give us a discount, for example, for winter traffic, which we've requested in the last number of years, and which is why we just ground the aircraft.

The reality is there's no incentive for them to do that.

Because Stansted has been very happy in recent years to have fewer passengers but a higher yield per passenger and a higher commercial yield per passenger, because they know they're going to be forced to sell it.

It makes more sense to do it that way, but hopefully that will change under a new owner.

Next question.

Who else has got the microphone?

Penny, go.

Penny Butcher from Morgan Stanley.

Two questions, the first, probably, for Howard, just to understand in terms of the cost evolution over the next couple of years, so pre-aircraft order.

You're talking about currency being a factor mostly in the 2% increase.

Would it be fair to assume that we're talking flattish underlying in the mid term?

Or do you have other reasons to expect inflation to be in that 2% range, ex currency?

Very difficult to give much guidance beyond the end of this year, Penny.

But I think, as we set out earlier on this year, we don't really see any real significant drivers increasing the cost base, so -- unless we get the --

[The] surprising --

-- crazy stuff like we had in Italy, where we got a quadrupling of charges retrospectively.

And that's the kind of stuff that can upset the cost base.

But over the medium term we don't see really any great drivers of cost increase.

Okay.

And the second question is you referred earlier on to potential changes in the major carriers and Western Europe still being the source of growth.

What markets are you talking about there?

You mentioned, obviously, the UK base opportunity.

But say, for example, Iberia announces a fairly significant restructuring, is that enough to get you back to that market right now, or do you still think the charging mechanism is an impediment to adding capacity back to Spain?

No, I think we're continuing to grow in Spain, although it's selective.

We're declining in Alicante, where they're screwing us round on air bridges, but growing elsewhere.

I think it's hard to identify which market and which comes first, which is second, which is third.

But if you look at it there will be a significant restructuring of Iberia short haul in the Spanish market.

There will be a very significant restructuring of SAS in the Scandinavian market.

Iberia -- or Alitalia is due -- is absolutely set for a very significant short-haul restructuring.

Air Berlin has no choice but to do a very significant short-haul restructuring.

So -- and LOT will be -- have very significant restructuring in the Polish market, but it's pretty small anyway.

So there will be lots of different opportunities that you can identify [that we] point to.

In the UK, to be fair, BA has largely restructured the short haul.

I think they're down to the minimum short-haul feed.

But the charter airlines here -- Thomas Cook are talking about very -- again reducing the fleet sizes.

That market is going to, I think, disappear.

I'm not sure of the likes of the second-tier carriers, the Jet2s and these people, whether they're really long for this world, particularly as we and easyJet expand to places like Manchester, Liverpool and East Midlands which would have been home to them.

So there's those kind of opportunities.

It's very easy to see how we get from 80m to 120m passengers over the next five or 10 years as those opportunities unfold.

What we would ask is that they don't unfold chaotically.

What we want to see is a gradual reduction, a managed reduction of Iberia short-haul capacity and Italia's loss-making short-haul capacity, SAS's.

What we really don't want to see is the structural catastrophe like a Malev closing or a Spanair closing, because it's much harder for us to take up those opportunities immediately.

Whereas somebody gradually -- some big behemoth gradually dying under the weight of its own excess bloated weight is a much better way for us to expand.

Well, just to follow up quickly to that, what about -- I gather you were asked the questions this morning in the press conference about Moscow and Israel etc.

etc.

What about other markets?

Is North Africa worth looking at again, or is that a similar issue?

(Multiple speakers).

We continue to talk.

We're looking in North Africa.

We've had some discussions with the Russians.

We're looking at Israel.

But in the context of where's the next 50% of growth going to come from, they'll be small.

There are opportunities there.

We can't do London/Moscow at the moment, because the regulatory regime at the Irish end doesn't allow us to do it.

We're talking to some airports in the former Russian States, Georgia, Ukraine.

Again -- but those dialogues and those negotiations are going on with those airports, but they'll be relatively small compared to, I think, the opportunities in Western Europe, Central Europe, in Poland, which is a very large area of growth for us this year with the new bases in Poland and the new bases in Budapest.

And those opportunities continue.

Whereas in the rush to look at Israel and Moscow people take their eyes off the opportunities there are in Liverpool and Manchester and East Midlands, because they're not fashionable.

But yet there's going to be a lot of growth for us in those big strong catchment areas in the next 12 months, largely because easyJet are removing capacity out of those markets.

Next question.

Damian Brewer, RBC, a couple of questions.

You've mentioned Stansted, but in the more broader context as European air traffic movements continue to sink, is there more to do with other airports in Europe in terms of re-visiting what you pay them and re-visiting those that you've maybe not gone to before, but could go to again in future with a better economic case?

And then, secondly, it's been tried by a few carriers, but it doesn't seem to have taken off yet in Europe.

People seem to fight for overhead baggage space.

Is it something you'd ever consider paying for, or getting them to pay partly for?

Okay.

Other EU airports, I think what's important to understand is that we have about three teams of new -- of airport -- new airport, new route development people who are in almost continuous dialogue with airports, both existing and new airports.

Airports that we have previously flown to but fallen out with, we're still talking to.

At Alicante, for example, we have an offer in at the moment to grow them by 600,000 passengers next year, despite that the airport has lost 1m passengers this year, all on the back of this ridiculous imposition of mandatory air board use and air bridge fees.

So that dialect continues all the time.

We have at any given time a mix of probably 20 or 30 offers on the table from new airports that we don't fly to, from airports that we flew to but had a row with, a la Stansted, or an airport that we are presently flying to but who want more growth.

And we're all the time balancing those deals to see which gets us the best new deal.

So, yes, there are lots of opportunities and continued growth opportunities at European airports.

I think the opportunities are getting better.

We're certainly being approached by more airports in Spain, in Scandinavia and Italy, where I think airports that wouldn't have talked to us previously are now genuinely terrified that they're going to lose 20%, 30% of their short-haul flight carrier business and, unfortunately, may not like discuss -- talking to us, but recognize that we're the only show in town.

In terms of the charges for the carry-on bags, I think it's an interesting concept.

We're looking closely at what Spirit are at at the moment.

I wouldn't say never, I think it may be something we may do at some point in time in the future, but for the moment our focus would still be on getting rid of the checked-in bags, reducing our handling costs, continuing to allow people to carry a free carry-on bag, but rigidly imposing one carry-on bag per person.

I think you might at some point in time in the future be charged for carry-on bags, but for the moment when the drive and the focus of our drive is to still get us away from checked-in bags I think it would be a bit of a contradictory position to be saying -- well, we don't want you to carry your checked-in bag and now we're going to charge you for the carry-on bag.

[We see Spirit] -- excuse me, Spirit has in the States with various degrees of success.

I think it's Wizz Air -- it doesn't seem to be much of an implementation within Wizz Air.

It seems to be a fairly passive policy of pay for it online and if you don't pay for it online they won't actually stop you at the boarding gate anyway.

That's not the way we do things.

If we introduce a policy, we introduce a policy.

But I think we don't have a plan to do it in -- certainly, in the foreseeable future, this -- the rest of this fiscal year, but it's something we would keep under review.

Going back, maybe, to what Penny said earlier on, if we were to look at our cost base I would see probably the biggest opportunity in the airport and handling costs, because we group those two together.

I think there are still very significant opportunities out there to use our size and scale, and, as our growth rate slows down, to look at moving that capacity around to what gives us the best offer.

Who's got the next question?

Yes.

Good morning, Neil Glynn from Credit Suisse.

If I could start with a question.

You've highlighted potential financing challenges for Norwegian, but arguably their recent base choices provide an interesting snapshot into future development since, obviously, a good amount of overlap with you in Spain and also in London.

Just interested in your approach.

Do you fend that off -- fend that minor threat off head on, or do you take a more wait-and-see approach?

And then --

From Norwegian?

It's very hard to be threatened by an airline that has an average fare of over EUR100.

To be fair, I think Norwegian has a nice model.

It's very much a niche player at the moment and it depends -- I think Norwegian's success is a by-product of SAS's failure.

I think the real threat for Norwegian, though, is, as SAS significantly restructures, the danger is that we'll arrive up in Scandinavia, in which case the Norwegian model is in deep (expletive).

But they would be a viable competitor in the Scandinavian marketplace for the moment.

But on the couple of times that we've come up against Norwegian out of Dublin, out of Stansted they have retreated quite sensibly.

And at Rygge -- their main base was in Oslo Rygge when we went into Oslo Rygge and I think about within six months of us showing up in Rygge they'd gone back to Oslo at Gardermoen.

Which is -- so I think to be fair they've enough sense to follow the easyJet strategy, which is to stay out of Ryanair's way and, where Ryanair show up, get out of the way.

But -- and I think they -- they have really significant challenges.

I think there will be an enormous challenge for Norwegian to fund and find a home for 200 short-haul aircraft, but good luck to them.

Okay.

Just a second question on -- you mention that the first quarter some softness in Eastern Europe and also in Spain.

Can you give us an update as to whether things are improving?

Is that improving along with the rest of your network?

I think what we said in the first quarter has largely continued through into the second and, we think, the third quarter.

Yields in Central Europe, particularly out of the new bases in Warsaw and Budapest, are very low.

We're engaged in pretty imaginative competition with Wizz Air at those marketplaces.

Wizz Air tends to have a pricing -- they flip flop around a bit.

They have a week where they decide they're going to compete with us on price, in which case, they go down to PLN4 and we go down to PLN1.

And then after a week they've gone back up to PLN300 and, so, we might go back up to PLN10 or something.

So I'm not sure what their policy is.

But we have a very simple philosophy.

We have 80% load factors at those bases.

They're performing very well, but at very low prices.

I think that will sort itself out over time when Wizz realizes there's really no future in competing with us head to head, but for as long as they want to they want to.

Spain is a slightly different issue, in that in Spain the business is growing strongly, the fares aren't bad, but you have this government-sponsored thievery going on where they allow AENA -- they passed a law that doubled AENA's charges overnight, which will have a very damaging effect on traffic volumes at the Spanish airports.

I think you've seen one of the reasons why easyJet has closed the Madrid base, why Iberia is going to have a very significant cutback in their short-haul operations, is this doubling of airport charges.

And you can't -- I think the Spanish government can't simply continue to fatten up AENA for some spectacular asset sale and at the same time completely trash both their tourism industry and youth unemployment numbers over there.

Thanks, who's next?

Go ahead, Peter.

Yes, Peter Hyde from Liberum, just two questions.

One is that I notice that ancillary revenue keeps outperforming passenger fares.

Do you think that's going to be a trend that continues?

Do you still think the 20% target is fair, or is it too low?

Or what are your thoughts on that?

And then, coming back to Spain, I know we don't really know, but if Iberia was to restructure quite materially, when you talk about offers on the table do you think there might be some quite significant offers?

Or do you see those significant offers on the table now on the basis that, you've just said, Spain's got significant unemployment?

It needs to get its economy moving somewhat.

And would you consider materially increasing your capacity in Spain if Iberia was to materially reduce its capacity?

Thanks.

Okay, I think ancillaries -- I still think in our general guidance is 20%, though it gets distorted a bit.

We are getting very good at exploiting ancillaries and increasing the take-up, and differentiating the product between, say, things like priority boarding and reserved seating.

And we have been genuinely surprised by how well reserved seating has taken up without cannibalizing priority boarding.

But ultimately the revenue -- the average fair performance in recent years has been sluggish, which is partly, therefore, slightly distorted.

I do think over the medium term average fares will rise a bit more, not because we'll be putting prices up, I think, just because the competition will be putting short-haul fares up so significantly.

I still think we're likely for next year to stay slightly ahead of 20% on ancillary revenues, but I think at longer term 20% ancillary revenues, 80% scheduled revenues is where the split will fall.

In terms of Spain, I think Spain is a very interesting marketplace.

Like most airline restructurings, I think Air Iberia will do not one big bang.

It will be three or four different goes at it before they eventually get it right.

I think Willie, having gone through the process himself, but with Aer Lingus and, more recently, with BA, will be pushing, I think, a -- for a more revolutionary approach.

But it's a very politicized market down there, as we've found to our -- as we found out this summer, particularly in the area of safety.

I think there are certain markets in Spain where the local politics lends itself to them doing more revolutionary-type deals.

Particularly our experience has been in the islands, the Balearics, the Canaries, where, to be fair to them, the airports and the local politicians seem to have a lot more independence from the dead hand of Madrid.

On mainland Spain dead hand of Madrid seems to have a lot more sway.

But I just think that the whole mess in Spain ultimately -- the Spanish tourism is such a large industry for them down there.

It's an industry that is directly influenced by government.

The property market will take years to recover, whereas, the 50% youth unemployment in Spain -- now, most of us got our first jobs in a bar, or restaurant, or hotel or something, and that's where most kids get their first jobs.

And I think ultimately, although there's not much sign of it under the current government, they have to come up with some kind of job-creation strategy in Spain and that will be tourism led.

And if it's going to be tourism led, you start with AENA and tell them to stop building big shiny bloody palaces named after some local political bigwig, when the existing older terminal is fine.

Get the costs down, break up some of the crazy structure we have.

We have -- ground handling costs in Spain are determined by Iberia's ground handling cost.

It's [congenial], where Iberia basically gets together with its handlers every year and agrees a 10% pay increase and that thing gets imposed on everybody else's handling cost.

That kind of -- those Spanish practices have to end.

But I've been waiting for a long time in Europe for those kind of Spanish practices to end and they seem to survive longer in Europe than anywhere else.

But I do think over the medium term there will be much more radical restructuring of the Spanish economy and that will be good for our model.

Without going on about it, you're giving a vision of more over a period of time than the big bang, let's say, in six months' time or three months' time, or even a year's time.

Yes, it will be more three to five years than big bang six months' time.

That's not to say there won't be a big bang in six months' time, but for a big bang in six months' time you'd need Iberia to implode.

That's not going to happen.

I think Iberia will restructure significantly, but not on a revolutionary scale.

Thanks.

Yes, hi.

Geof Collyer from Deutsche, two quick questions.

Can you split out the EUR97m increase in ancillary revenues into reserved and priority boarding and the other Internet sales?

And then, secondly, given that you've given -- or given that you've provided remedies for every single route with Aer Lingus, are you able to say what proportion of Aer Lingus you would expect to keep if all your remedies were accepted?

The answer to the first question is we wouldn't split out the break -- the analysis of ancillaries on a quarterly or a half-year basis.

We do it on an annualized basis.

But -- and it's not all -- the growth of the EUR97m hasn't all just been reserved seating and priority boarding.

There are other things in there; credit card income; their admin fees.

We've also been better at targeting -- there's been an increase in in-flight sales.

So it's generally well spread across most of the sectors.

There's been an --

[Better] performance in car hire --

In car hire --

Hotels, their penetration rate has improved (multiple speakers).

The best way to understand it is we are getting better at penetration and increasing penetration across most of the segments.

There's been no significant decline in any particular segment.

They've all contributed to the growth in ancillary revenues.

On the second part of the question, which I have now forgotten again -- yes, on the remedies.

If the existing remedies are taken up we would be handing over about 25% -- Aer Lingus have been 9.3m passengers.

We'd be handing over 2.5m to 3m of Aer Lingus' existing traffic.

We'll be switching those aircraft away from -- some of those aircraft away from the Irish airports to other European airports.

There would be no job losses.

There would be actually job growth because, Aer Lingus, the aircraft, would still fly except somewhere else.

And then the other airlines would come into Dublin and create new jobs.

So this myth that it would result in a big decline in jobs is untrue.

We're not closing any part of Aer Lingus' operation, but we would be switching aircraft to elsewhere.

But It would account, I think, in total for between 2.5m and 3m of Aer Lingus' existing passenger base.

And we would still have that factored into our overall objective of growing Aer Lingus' traffic from 9.5m to 15m passengers within a five-year period, would still -- would take account of those -- of that switch.

So net net for Ireland there would be further traffic growth from Aer Lingus, but also from the upfront buyers.

Next question.

Okay, folks, there are no more --

Are we going to take any (multiple speakers)?

Are we taking any questions from overseas?

No.

No.

We have no questions [here] from the audience.

Okay, thanks, everybody.

As we said, we're on a week-long road show, which is partly why I have to apologize we're doing the conference call here so early.

I'm on the way to the west coast.

Howard's going to the east coast of the States.

Anybody who has any follow-up questions we will be here for a few minutes, or route it back through the Investor Relations team and we'll be happy to get back to you later on in the week, or early next week when we're back.

Thanks very much, everybody.

Thank you.